Great-West Life. London Life Canada Life

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1 Great-West Lifeco Great-West Lifeco is an international financial services holding company with interests in life insurance, health insurance, retirement and investment services, asset management and reinsurance businesses. Great-West Lifeco has operations in Canada, the United States, Europe and Asia through Great-West Life, London Life, Canada Life, Great-West Life & Annuity and Putnam Investments. Great-West Lifeco and its companies have over $502 billion in total assets under administration. Great-West Lifeco s financial condition remains very solid as a result of its continued strong performance in The company delivered superior results compared to peer companies in its industry due to strong organic growth of premiums and deposits, as well as solid investment performance, despite challenging market conditions. Great-West Lifeco s companies continue to benefit from prudent and conservative investment policies and practices with respect to the management of their consolidated assets. In addition, conservative product underwriting standards and a disciplined approach to introducing new products have proven beneficial for Great West Lifeco and its companies over the long term. Great West Lifeco s approach to asset and liability management has minimized exposure to interest rate movements. In Canada, Great West Lifeco continued to offer segregated fund guarantees in a judicious and disciplined manner, thereby limiting risk exposure. As a result of these practices, Great West Lifeco s balance sheet is one of the strongest in the industry. The Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio for Great-West Life was 204 per cent on a consolidated basis at December 31, This measure of capital strength remains at the upper end of the company s target operating range. At December 31, 2011, Great West Lifeco held cash and cash equivalents of approximately $600 million, the net result of capital transactions since the third quarter of As this cash is held at the holding company, it is not reflected in the regulatory capital ratios of Great West Lifeco s operating subsidiaries. It augments Great West Lifeco s capital and liquidity position, thereby enhancing its capability to take advantage of market opportunities. 18 Power Financial Corporation 2011 Annual Report

2 Great-West Life London Life Canada Life canada Great-West Life founded in Winnipeg, Manitoba in 1891, is a leading Canadian insurer, with interests in life insurance, health insurance, investment, savings and retirement income and reinsurance businesses, primarily in Canada and Europe. In Canada, Great-West Life and its subsidiaries, London Life and Canada Life, offer a broad portfolio of financial and benefit plan solutions and serve the financial security needs of more than 12 million people. London Life founded in London, Ontario in 1874, has been helping Canadians meet their financial security needs for more than 135 years. Canada Life founded in 1847, was Canada s first domestic life insurance company. Great-West Life Great-West Life s products include a wide range of investment, savings and retirement income plans, and payout annuities, as well as life, disability, critical illness and health insurance for individuals and families. These products and services are distributed through a diverse network of financial security advisors and brokers associated with Great-West Life; financial security advisors associated with London Life s Freedom 55 Financial division and the Wealth & Estate Planning Group; and the distribution channels Canada Life supports, including independent advisors associated with managing general agencies, as well as national accounts including Investors Group. For large and small businesses and organizations, Great-West Life offers a variety of group benefit plan solutions featuring options such as life, health care, dental care, critical illness, disability, wellness and international benefits, plus convenient online services. The company also offers group retirement and savings plans that are tailored to the unique needs of businesses and organizations. These products and services are distributed through financial security advisors associated with our companies, as well as independent advisors, brokers and consultants. In 2011 Great-West Life and its subsidiaries continued to see strong sustained performance in their Canadian businesses. Their individual insurance business grew slightly faster than the market; the group retirement services business recorded solid growth; the group insurance business continued to experience strong persistency; and the individual segregated fund and mutual fund businesses maintained positive net cash flows. Power Financial Corporation 2011 Annual Report 19

3 Our businesses are focused on helping individuals achieve and maintain financial security throughout their lifetimes. LONDON LIFE London Life offers financial security advice and planning through its more than 3,150-member Freedom 55 Financial division. Freedom 55 Financial offers London Life s own brand of investment, savings and retirement income, annuities, life insurance and mortgage products. Within Freedom 55 Financial, the Wealth & Estate Planning Group is a specialized segment of advisors focused on meeting the complex needs of affluent Canadians. In addition, financial security advisors associated with London Life offer a broad range of financial products from other financial institutions. A London Life subsidiary, Quadrus Investment Services Ltd., offers 43 exclusive mutual funds under the Quadrus Group of Funds brand. The relationship the company has with advisors supports the very strong persistency of its business, provides a strategic advantage and contributes to strong market share across multiple lines of business. CANADA LIFE In Canada, the company offers a broad range of insurance and wealth management products and services for individuals, families and business owners from coast to coast. These products include investments, savings and retirement income, annuities, life, disability and critical illness insurance. Canada Life, together with Great-West Life, is a leading provider of individual disability and critical illness insurance in Canada. Canada Life is the leading provider of creditor insurance in Canada for mortgages, loans, credit cards, lines of credit and leases through leading financial institutions, automobile dealerships and other lending institutions. 20 Power Financial Corporation 2011 Annual Report

4 Canada Life Europe Canada Life, with roots in Europe dating back to 1903, provides individuals and their families with a broad range of insurance and wealth management products. These include: payout annuities, investments and group insurance in the United Kingdom; savings and individual insurance in the Isle of Man; individual insurance, savings and pension products in Ireland; and fund-based pensions, critical illness and disability insurance in Germany. Through its Reinsurance Division, Canada Life is a leading provider of traditional mortality, structured and annuity reinsurance solutions for life insurers in the United States and in international markets. As a result of its continued emphasis on credit and expense controls, Canada Life was in a strong position coming into 2011, and this focus was maintained throughout the year. Additionally, there was renewed attention on risk and risk management, as Canada Life prepares for the advent of Solvency II in Europe. In the U.K., Canada Life continued to grow premium volumes, especially in the Isle of Man product range, despite economic challenges which adversely affected the group insurance business. Sales of payout annuities were very strong in the early part of In Germany, Canada Life operates in the independent broker market and is one of the leading insurers for guaranteed unit-linked products in the broker segment. Despite challenging market conditions for unit-linked providers, retirement savings product sales, and in particular sales of the market-leading Guaranteed Minimum Withdrawal Benefit (GMWB) product, showed strong growth in Canada Life s serious illness and GMWB products retained their status as the leaders in their categories in a recent poll of insurance intermediaries. In Ireland, Canada Life became the first company to launch a guaranteed variable annuity product, and also launched a new Income Opportunities Fund, managed by Setanta Asset Management, the group s asset manager in Ireland. In 2011, reinsurance demand remained strong, particularly for structured reinsurance solutions with U.S. life insurers. Canada Life continued to leverage its financial strength, disciplined risk management practices and excellent client relationships to achieve strong business results in the face of significant catastrophe impacts early in the year. The company continues to follow capital developments globally for potential business opportunities. Power Financial Corporation 2011 Annual Report 21

5 Great-West Life & Annuity United states Great-West Life & Annuity is a leading provider of employer-sponsored retirement savings plans. GWL&A and its subsidiaries offer fund management, investment and advisory services, as well as record-keeping and administrative services for other plan providers. GWL&A also offers business-owned life insurance, executive benefits products, individual retirement accounts, life insurance and annuities. The company markets its products and services nationwide through its sales force and distribution partners. In 2011, GWL&A made significant progress on its strategic plan. Key initiatives to increase sales and assets under management, enhance service and launch new products laid the groundwork for accelerated growth. Expanded distribution and diverse product offerings contributed to a 23 per cent increase in corporate 401(k) plan sales and a jump in regional and national business-owned life insurance cases to nine in 2011 from three the previous year. An agreement with a nationwide financial distributor created a high-potential channel for corporate 401(k) sales, while GWL&A also added distribution partners to drive additional sales of individual life insurance products. A new online sales tool aggregated information about 401(k) prospects, advisors, plans and sales metrics to increase opportunities and sales force productivity. A new customer relationship management system consolidated legacy databases to improve service to plan sponsors and partners and enhance client retention. The Maxim Lifetime Asset Allocation Series mutual funds, which provide retirement target date options, and the Maxim SecureFoundation Portfolios, which offer guaranteed lifetime income within retirement plans, together ranked 10th in net flows among U.S. target date offerings in An individual retirement account rollover initiative helped increase asset retention. A new hybrid product accounted for 26 per cent of business-owned life insurance sales in A collective trust product introduced in 2011 provides target date asset allocation investment solutions to large corporate and government plan markets. 22 Power Financial Corporation 2011 Annual Report

6 Putnam Investments United states Europe asia This year, Putnam celebrates 75 years of managing money for individual and institutional investors. Inspired by balance, the firm has practised an active, risk-conscious approach to pursuing client mandates since the launch of the George Putnam Balanced Fund in Putnam today provides investment services across a range of equity, fixed income, absolute return and alternative strategies. The global asset manager and retirement plan provider distributes those services largely through intermediaries via its offices and strategic alliances in North America, Europe and Asia. Putnam made significant progress in 2011 as the firm continued to focus on further bolstering its investment and distribution capabilities, retirement offerings, brand strength in the marketplace, state-of-the-art technology and innovative product offerings, while maintaining award-winning customer service. The firm expanded its product line during the year with funds that seek to help advisors and their clients manage the challenges of the current investment era, through the introduction of Putnam Dynamic Risk Allocation Fund, Putnam Short Duration Income Fund, and the Putnam Retirement Income Lifestyle Funds. Putnam continued to bring value-added thought leadership and differentiated practice management services to the marketplace last year. Putnam launched the acclaimed FundVisualizer tool and Wealth Management Center for financial advisors, as well as the Putnam Institute, which aims to critically examine key investment theories and issues of importance to individual and institutional investors, consultants, plan sponsors and financial advisors. In 2011, Putnam was recognized by a number of industry observers for strong investment results, service and business leadership. The firm received six Lipper Fund Awards based on performance excellence across multiple asset classes for periods of three years or more. Additionally, Putnam won the DALBAR Service Award for the 22nd consecutive year for providing the highest levels of investor service to mutual fund shareholders, and was named Retirement Leader of the Year by a major industry publication. Power Financial Corporation 2011 Annual Report 23

7 IGM Financial IGM Financial is one of Canada s premier personal financial services companies, and one of the country s largest managers and distributors of mutual funds and other managed asset products, with over $118 billion in total assets under management at December 31, The company serves the financial needs of Canadians through multiple distinct businesses, including Investors Group, Mackenzie Financial and Investment Planning Counsel. Fundamental to its activities is the belief in the value of advice in contributing to the advancement of the financial literacy and financial security of Canadians. IGM Financial and its operating companies experienced an increase in net earnings in Average total assets under management increased year over year. Investors Group Inc. and Mackenzie Financial Corporation, the company s principal businesses, continued to generate business growth through product innovation, investment management, resource management, and distribution expansion throughout the year. The company is well diversified through its multiple distribution channels, product types, investment management units and fund brands. Assets under management are diversified by country of investment, industry sector, security type and management style. A primary component of the company s business approach is to support financial advisors as they work with clients to plan for and achieve their financial goals. The importance of financial advice became clearer throughout the industry in the last few years as a result of emerging research and continued public interest in enhanced financial literacy. The scope of the company s business and its association with other members of the Power Financial Corporation group of companies have placed IGM Financial in a position of leadership and strength in the financial services industry. Together, these elements will enable IGM Financial to create long term value for its clients, consultants, advisors, employees and shareholders over time. IGM Financial is committed to the principles of corporate social responsibility. The company has a long-standing practice of corporate giving through a range of philanthropic activities at IGM Financial and within each of its operating companies. Their people contribute to communities across Canada through active participation in volunteer organizations, industry 24 Power Financial Corporation 2011 Annual Report

8 committees and professional associations. The company conducts its business in a manner that respects the long-term financial, economic, environmental and social interests of the communities in which it operates. IGM Financial is committed to the principles of good governance practices which consider the long-term returns to the company s shareholders and its responsibilities to its clients. In keeping with this commitment, IGM Financial has adopted an extensive written code of conduct that governs its directors, officers and employees. The Investors Group consultant network continued to expand by opening five new region offices during The company now has 106 region offices across Canada. There were 4,608 consultants at December 31, Investors Group continued to respond to the complex financial needs of its clients by delivering a diverse range of products and services in the context of personalized financial advice. Mackenzie maintained its focus on delivering consistent long-term investment performance true to the multiple styles deployed in the investment process, while emphasizing product innovation and communication with advisors and investors. This focus is evidenced by the strength of Mackenzie s relationships with financial advisors, the work undertaken with investor and advisor education programs, and the company s commitment to focusing on active investment management strategies. During 2011, Mackenzie added several new funds and more options, including tax-deferred solutions. IGM Financial continues to build its business through a strategic focus on multiple distribution opportunities delivering high-quality advice, as well as innovative investment and service solutions for investors. The value of advice is based upon a long term relationship between a household and a financial advisor where saving habits are built over time. Power Financial Corporation 2011 Annual Report 25

9 Investors Group Investors Group is committed to comprehensive planning delivered through long-term client and consultant relationships. The company provides advice and services through a network of approximately 4,600 consultants to nearly one million Canadians. Investors Group offers investment management, securities, insurance, mortgage and other financial services to its clients through integrated financial planning. The company s commitment to training and support is integral to consultants ability to deliver effective financial advice. Investors Group s culture provides consultants with an entrepreneurial environment and unique support structure to deliver personalized service and knowledgeable advice to clients. In 2011, Investors Group continued to make progress in a number of key areas. Growth in the consultant network, combined with industry-low redemption rates, is strong evidence of client and consultant satisfaction with the calm and steady approach being taken to their long-term financial planning needs. Clients enhance their financial literacy and gain financial confidence as consultants assist them with the development and deployment of their financial plans. Investors Group is committed to the ongoing evolution and expansion of its product and service offering. In 2011, the company implemented a number of enhancements to its fixed income offering in order to address the current low interest rate environment and provide appropriate diversification opportunities for clients. Investors Fixed Income Flex Portfolio was introduced in February and Investors Canadian Corporate Bond Fund in May. In November, three new equity mandates were added Investors Core Canadian Equity, Investors Core U.S. Equity, and IG Putnam U.S. Growth. The company also announced the proposed merger of eight funds with similar investment mandates. These proposed mergers are intended to provide more effective management and, in some cases, broader, more diversified investment mandates, which in turn will provide the potential for more stable long-term performance. In 2011, the consultant network growth, the active engagement of over 1,700 employees, the increased communication in response to the global financial situation, the continual refinement of financial planning, and the expanding product and service offerings demonstrated the company s commitment to meet the evolving financial needs of Canadians. 26 Power Financial Corporation 2011 Annual Report

10 Mackenzie Financial Mackenzie is a multidimensional financial services company with more than 150 mutual funds and is recognized as one of Canada s premier investment managers, providing investment advisory and related services in North America. The company provides investment management services through multiple product offerings utilizing proprietary investment research and experienced investment professionals. The company distributes its investment services through multiple distribution channels to both retail and institutional investors. Mackenzie is dedicated to providing clients with high-quality, innovative investment solutions, and strives to maintain strong long-term investment performance across its multiple product offerings. In 2011, Mackenzie continued to focus on business growth, innovation and responsiveness, and professional growth. On September 2, Mackenzie entered into an agreement with B2B Trust, a subsidiary of Laurentian Bank, under which B2B Trust would acquire 100 per cent of M.R.S. Trust Company and M.R.S. Inc. in a share purchase transaction. The transaction closed on November 16. This sale allows the company to focus all of its energy and resources moving forward on its core business of investment management. Mackenzie s product lineup continued to evolve with a number of product launches during the year, including Mackenzie Saxon Dividend Income Class, a tax-efficient version of Mackenzie Saxon Dividend Income Fund, and the Canadian Shield Fund was converted from a closed-end investment fund to Mackenzie Universal Canadian Shield Fund, an open-end mutual fund. In November, Mackenzie became one of the few mutual fund distributors to offer the Registered Disability Savings Plan (RDSP). The strength of Mackenzie s retail distribution network is built on long-standing and expanding relationships. These relationships allow the company s products to be efficiently distributed through retail brokers, financial advisors, insurance agents, banks, pension consulting firms and financial institutions, giving Mackenzie one of the broadest retail distribution platforms of any investment company in Canada. With the realignment of its sales teams to focus on strategic alliances and the retail and institutional channels, Mackenzie is positioned to serve the needs of different types of investors across the insurance channel, group retirement platforms, sub-advisory needs, pension plans, corporations and individuals working with a financial advisor. Power Financial Corporation 2011 Annual Report 27

11 Pargesa group The Pargesa group holds significant positions in six large companies based in Europe: Imerys (industrial minerals), Lafarge (cement, aggregates and concrete), Total (oil and gas), GDF Suez (electricity and gas), Suez Environnement (water and waste management) and Pernod Ricard (wines and spirits). Power Financial, through its wholly owned subsidiary Power Financial Europe B.V., and the Frère family group of Belgium each hold a 50 per cent interest in Parjointco, a Netherlands-based company. Parjointco s principal holding is a 56.5 per cent equity interest (76.0 per cent of the voting rights) in Pargesa Holding SA, the Pargesa group s parent company based in Geneva, Switzerland. The Pargesa group s strategy is to establish a limited number of substantial interests in which it can acquire a position of control or significant influence. In April 2011, Pargesa sold its 25.6 per cent stake in Imerys to GBL for 1,087 million so as to concentrate within the latter the oversight of its controlling stake, which was 57.0 per cent as at December 31, There were no other major changes in the group s investment portfolio in In 2011, the group s holdings all posted increases in revenues. Their operating performance also improved, except for Lafarge, which was impacted by high cost inflation and by negative foreign exchange. At the level of Pargesa, according to the economic presentation of results, net operating earnings declined 26.5 per cent to SF342 million, mainly due to a decrease in the euro against the Swiss franc, the reporting currency used in Pargesa s financial statements. After a write-down of SF416 million of GBL s interest in Lafarge, Pargesa recorded a loss of SF65 million. Imerys A world leader in mineral processing, Imerys holds leading positions in each of its sectors: Performance and Filtration Minerals, Materials and Monolithics, Pigments for Papers and Packaging, and Ceramics, Refractaries, Abrasives and Foundry. In 2011, Imerys end markets held up well overall compared to 2010, a year of strong rebound and inventory rebuilding. Sales grew by 9.8 per cent to 3.7 billion, current operating income rose 15.5 per cent to 487 million and net income, after non-recurring items, was up 25.3 per cent to 303 million. 28 Power Financial Corporation 2011 Annual Report

12 Lafarge With operations in more than 64 countries, Lafarge, a world leader in building materials, holds leading positions in each of its markets: cement, aggregates and concrete. In 2011, the group s sales were up 3 per cent to 15.3 billion, sustained by growing volumes in emerging markets and favourable weather conditions in the last quarter. High cost inflation and negative foreign exchange impacts weighed on current operating income, which fell 8.9 per cent to 2.2 billion. Net income, after non-recurring items, stood at 593 million, compared to 827 million in Total Created from the successive mergers of Total, PetroFina and Elf Aquitaine, Total is one of the largest international oil and gas groups and a major player in chemicals. Despite a backdrop of economic slowdown, ongoing pressure on global oil supplies drove the average price of crude oil above US$111/barrel, a 40 per cent increase over the previous year. This environment was favourable for upstream operations, but difficult for downstream operations in Europe. The European refining margin indicator (ERMI) fell to US$17.4/tonne from US$27.4/tonne in 2010, while the average gas selling price rose 27 per cent. In this context, net income stood at 12.3 billion versus 10.6 billion in Contrary to popular belief, the relationship with a financial advisor generally starts when an individual has a relatively low level of financial assets. Power Financial Corporation 2011 Annual Report 29

13 Pargesa group continued GDF Suez GDF Suez, created from the 2008 merger of Suez and Gaz de France, is an international industrial and services group active across the entire energy value chain in electricity and natural gas, upstream to downstream. GDF Suez develops its core business in electricity and heat generation, trading, transmission and distribution of electricity and gas (natural and liquified), and energy and industrial services. In 2011, the company recorded sales of 90.7 billion, up 7.3 per cent, despite exceptionally mild weather in Europe and a gas rate freeze in France. EBITDA was up 9.5 per cent to 16.5 billion, reflecting the contribution of International Power, which was integrated into the group in February Net income, after non-recurring items, stood at 4.0 billion versus 4.6 billion the previous year. Suez Environnement Suez Environnement integrates water and waste management operations that were formerly within the scope of Suez before it merged with Gaz de France. In the Water sector, the group designs and manages drinking water production and distribution systems and wastewater treatment systems, carries out engineering work and supplies a wide range of services to industry. In the Waste sector, Suez Environnement is active in managing (collecting, sorting, recycling, treating, recovering and storing) industrial and household waste. In 2011, the group s sales stood at 14.8 billion, up 6.9 per cent from the previous year. Current operating income, which rose 1.4 per cent to 1.0 billion, was impacted by additional construction costs for the Melbourne desalination plant. Net income, after non-recurring items, stood at 323 million versus 565 million in Pernod Ricard Since the creation of Pernod Ricard in 1975, significant organic growth and a series of acquisitions, particularly Seagram in 2001, Allied Domecq in 2005 and Vin & Sprit in 2008, have made the company the global co-leader in wines and spirits. In , Pernod Ricard s sales grew 8 per cent to 7.6 billion. The gross margin after logistics costs was up 9.3 per cent to 4.6 billion. Net income stood at 1,045 million compared to 951 million the previous year. 30 Power Financial Corporation 2011 Annual Report